Key to this turnaround, and also
to the rise of the Irish software industry, was the
implementation
of a highly successful policy of foreign direct investment, which
has resulted in Ireland becoming home to over 1,050 foreign
companies, 46 percent
of US origin. (p.42)
The origins of the IT industry in
Ireland can be traced back to this time when the
IDA made the
decision to selectively target companies in potentially
high-growth,
high-tech sectors. This strategy resulted in a wave of
foreign investment in the
1970s in electronics and computer
hardware with Digital Equipment Corporation
becoming the first
company to establish a mini-computer manufacturing operation
in
Ireland in 1971 (p.43)
The success of the IDA in
attracting
both Microsoft and Lotus Development (now part of IBM)
to Dublin in 1985 had
a catalytic effect on the development of the
Irish software industry. Both companies produce off-the-shelf
products for mass markets and their Irish operations
were initially
responsible for the manufacturing and distribution of these
products,
including tasks such as duplicating disks, printing
manuals, and assembling shrink-
wrapped packages. (p.46)
Over time Ireland, unlike India,
did not follow the trajectory of providing
international software
services, but rather developed a range of firms which sell
software
products in international niche markets in systems software and
enterprise applications. (p.49)
Several Irish software companies
started out by providing
‘bespoke’ or custom services to
businesses, expanding this into consultancy kits
and then products,
which many then succeeded in exporting. (p.49)
Other Irish software companies
came
into existence either as a result of government initiatives or
contracts (including spin-offs from state-owned entities) or when
firms in other industries, such
as telecommunications or computer
hardware, spun off their software divisions. (p.50)
Several of Ireland’s most
successful indigenous companies
have their origins in the
university environment. ...
Ireland’s most successful
indigenous software company, IONA Technologies
can trace its roots
to the EU Esprit grants for distributed computing research in
the
Computer Science Department of Trinity College, Dublin. (p.51)
The mid-1990s saw an upsurge in
entrepreneurial start-ups many of whom are product oriented from the
outset, focused on international markets, have obtained VC
funding,
and have the fortune to avail the managerial expertise of seasoned
software industry veterans. (p.52)
Until 1990, indigenous firms were
largely reliant on the provision of
software services (mainly
bespoke software development), but the mid-1990s,
saw a major
switch taking place from services to products, and from servicing
the
local market to exporting. (p.53)
As indigenous companies
increasingly move toward product provision, they
do so in niche (or
vertical) markets. O’Malley and O’Gorman [6, p. 29] state
that
‘indigenous producers of software products and services to a
lesser extent,
usually follow a strategy of specialization in
market niches’. The reasons for this
are twofold. First, this
specialization implies firms can succeed without having to
be very
large, an important consideration given the limited size of the
domestic
market. Second, there can be relatively lower barriers
associated with entering
vertical markets, which often sees firms
starting out by providing a custom-based
product for a single
customer and using this success to secure other customers in
the
same niche (often in Ireland or the United Kingdom), while at the
same time
developing their application into a generic product
suitable for export. (p.57-58)
The Irish government did not set
out with the express intention of developing
an indigenous software
industry, but they were highly successful in luring software MNCs
and in generating the right input factors, notably overhauling the
telecommunications system, creating a favorable business (tax)
environment, and
investing heavily in the national stock of human
capital, particularly in science
and technology disciplines.
(p.67)
Unlike the Indian software
industry, the Israeli industry is product
based and R&D
intensive, with its four undisputed leaders—Amdocs, Comverse,
Mercury Interactive, and Checkpoint Software Technologies—either
inventing or
leading their market niches. (p.72)
Indeed, software is just the
latest manifestation of Israel’s comparative advantage in R&D.
A comparative
advantage that is evident when one compares Israel’s
patents profile, one of the best
proxies of industrial innovation,
with other emerging countries. Not only Israeli
organizations
patent much more than their counterparts, but the quality of their
patents and their scientific linkage is much higher (p.73)
Israel has always had strong
academic involvement in industrial R&D (p.76)
The official history of IT and
computing in Israel began before the creation of the
Israeli state.
In 1947, the advisory committee of the Applied Mathematics
Department of the Weitzmann Institute (then known as the Seiff
Institute), consisting
of Albert Einstein, Hans Kramer, Robert
Oppenheimer, John Von Neumann, and
Abram Pais, recommended that the
Institute build an electronic digital computer,
making Israel the
first state-to-be to commit itself to computing (p.79)
However, the rapid expansion of
defense R&D and the rapid accumulation of
IT skills by both
university graduates and graduates of the military technological
units created local demand for IT usage along with the knowledge
base to supply
it. (p.79)
All of these companies have been
able
to undertake large-scale R&D efforts due to R&D grants
given by the Office
of the Chief Scientist (OCS) of the Ministry of
Trade and Industry (now Trade,
Industry, and Employment) after the
recognition of software as an industry in 1985.
(p.80)
Israeli firms established during
this period specialized in products that solved
problems connected
with IT usage. Therefore, it is not surprising that the original
data security companies (for which Israel is world-renowned) were
established at
this time. (p.83)
As noted earlier, software is the
latest manifestation of Israel’s comparative
advantage in R&D.
This comparative advantage lies in the high levels of skills
and
talent of Israeli scientists and engineers, and the relative paucity
of other types
of natural advantages, such as natural resources.
(p.86)
But perhaps the most crucial
decisions made in these years were the enactment
of the R&D Law
in 1984 and the recognition of software as an industrial sector in
1985. One of the main provisions of the R&D Law was that the OCS
would not
have a limited annual budget for its R&D grant
scheme. Therefore, all legitimate
and feasible proposals for R&D
product-oriented projects would be sponsored. (p.89)
Lacking familiarity with English,
a key export language, these large countries rely upon a strong
local demand for
the production of software through their
economies’ commitment to Information
and Communication
Technologies (ICT). (p.103)
As suggested by Table 5.3 the
leading activity in the software industry in
Brazil is system
integration, followed by processing services, and hardware and
software support. (p.106)
Another important characteristic
of the industry is the prevalence of government software firms among
the major players. These government firms originated
before the
1980s. (p.109)
In the decades preceding the
1990s, IT users, private and public sector alike,
perceived
software development as an essentially auxiliary activity performed
in-house by IT-user organizations and hardware producers. That is,
software
production activity did not have either a corporate or an
industrial identity
and was mostly an afterthought, a marginal
activity within firms. (p.111)
The Brazilian Payment System (SPB)
is a particularly good example of how
idiosyncratic local needs can
spur the development of capabilities. In 1999, the
Brazilian
Central Bank decided that, by 2002, Brazil should have installed an
advanced payment system in accordance with the most up-to-date
Internet technology recommended by the Bank for International
Settlements. (p.115)
Start-ups are a third area of
interest in telecom in particular for cell phones.
Demand for cell
phones has grown at a double-digit rate over the past few years,
reaching thirty-three million active phones by the end of 2002 and
is expected
to continue to grow in the future. (p.117)
Another area where the Brazilian
government is a world leader is in the adoption
of ‘free’
software such as Linux. At least eleven Brazilian cities have passed
laws
giving preference to or requiring the use of ‘software
libre’ and a number of other
municipalities, states, and the
national government have considered similar legislation. (p.117)
The Brazilian government is
very
large, with sophisticated needs and requirements in terms of
information
processing. To meet these needs, the strategy has been
to create public firms that
supply software and IT services across
states and sometimes across the entire
country. These companies
have a combined employment of over 10,000 and have
developed a rich
pool of competencies. This effort has made Brazil one of the leading
countries in this area, with important flagship projects such as
electronic voting
and electronic tax declarations. (p.117)
Through the mid-1990s,
Microsiga
and Datasul, two of the largest Brazilian software firms, had the
market
to themselves. But liberalization attracted giants such as
SAP and BAAN to the
business opportunity the Brazilian market
presented. While these global producers have quickly taken over the
large software firm market (mostly from internal
development, as
this segment had never been the major target of local developers),
the battle now is over ERP systems tailored to cater to medium-sized
companies.
(p.118)
Brazil is attracting the interest
of leading Indian services firms
such as Tata Consulting Services,
which announced a joint venture with TBA,
a local firm, to create a
software development operation expected to grow to 3,000
professionals in five years. In early 2004, it was the first
software firm in
Brazil to receive CMM level 5 certification.
(p.121)
Industry prospects changed when at
least two conditions were established.
One of these is the presence
of lead domestic client sectors for software firms
with demands
close to those of leading international firms. These clients
provide
opportunities for learning and competence deepening similar
to those found when
exporting to foreign competitive firms. The
examples of banking and telecom
explored in Section 5 illustrate
this dynamism. But the opportunity to learn is
not always enough.
The second required condition is the presence of competition
and
selection mechanisms, which induce successful firms to structure
capabilities,
while winnowing out firms that fail to learn.
(p.122)
This focus of the software sector
on the domestic market may also have important multiplying effects
for Brazil. Recent studies at the company and country
levels have
shown that investment in information technology is positively
related
to corporate and national economic performance [48–50].
This is especially
important for sectors that Kraemer and Dedrick
[48] refer to as ‘production close
to use’ sectors, where IT
use is very close to or overlaps with production.
China’s software firms can be
loosely classified into two groups. The first, which includes many
of China’s
largest software firms, are systems integration (SI)
firms. Systems integration
involves large custom projects where the
software firms provide a combination
of hardware and software and
services, including customized software. ...
The second type of
firm focuses primarily on product
development, although for various
reasons, also ended up doing SI and services.
(p.133)
As with the Brazilian software
industry, the Chinese software industry relies heavily on the huge
market of users and domestic producers. The
rapid and fairly
diverse industrial growth of China has led to a large surge in
domestic demand. (p.139)
In addition to having a direct
influence on software R&D and the formation of
software firms,
the government was also deeply involved in how the hardware
industry grew. This has ramifications for software firms in two
ways. First, some
of the larger hardware firms have developed
software arms, or are combining
software and hardware in systems
integration activities. Second, some hardware
manufacturers provide
business to software firms, with needs for software (to run
on
their products) ranging from desktop applications to embedded
software. (p.141)
In 1999, CASS designed its own
Hopen embedded operating system, and has leveraged this to great
effect in the electronics manufacturing
sector.(p.142)
While government procurement in
some product markets
may have been more beneficial by way of
getting some firms started, too much
support may make them wholly
dependent. Systems integrators that have relied
too much on large
government contracts may not be able to foster other customers,
and
so their growth may be limited in the future. (p.146)
Recently, the Hopen system was
further developed as the NUWA project,21 in
anticipation of the
increasing market for embedded software. The NUWA project
focuses
on developing the NUWA-Hopen OS as a basic embedded software
platform to work across a variety of information appliances.
(p.151)
Since software is critical to
their success, Huawei is making strategic investments in software,
including a large
development center with over 400 engineers in
Bangalore. They set up shop in
Bangalore as opposed to developing
their software in China suggesting that in
the medium term at
least, Chinese software process capability, even in embedded
applications, may not be as good as that of India’s. Our
interviews with Huawei
executives in Bangalore showed that they
believed that India’s process capability
was superior to China’s,
even though the Chinese were more advanced in terms
of telecoms
domain knowledge and had at least as much knowledge of software
theory. (p.151)
In 2000, the largest user of ERPs
was the
manufacturing industry, at 68.2 percent of the total ERP
market, followed by the
distribution, transportation, telecom, and
health industries. (p.152)
Many enterprises
value service
more than anything else, and require ERP vendors to have strong
customer support, something Chinese vendors are more prepared to do
than multinationals, which would rather just sell a product with
minimal additional cost of
localization. (p.153)
Chinese software firms compete
heavily with each other at the ‘lower’ end
of areas such as
office automation and basic ERPs, but revenues are harder to
build
up because these clients are less sophisticated or well-off and tend
to require
uniquely developed projects or much handholding (i.e.
consulting or customer
service) which works against the software
firms achieving scale economies. (p.153)
These numbers provide a powerful
reason why so many software companies—
product firms and systems
integrators alike—are doing systems integration. In
our
interviews, many firms, including product firms, noted that it was
difficult
to survive on products alone. Even Digital China, the
software arm of Legend,
focused on SI in order to gain additional
revenue (as related to us by one of its
executives). (p.154)
One problem is that even though
local software firms have a lot of work requiring highly customized,
domestic oriented systems and systems integration work, it is
difficult to derive scale
economies in such uneven markets. A
second problem that Chinese software
firms face is the problem of
high competition. Many local firms compete with
each other at the
low end. At the higher end of the market in certain sectors,
there
is also the increasing presence of foreign firms. (p.155)
However, while Chinese software
workers have the theoretical knowledge to
handle the basic tasks
and are fairly sophisticated analytically, they lack the
software
process skills of Indian software workers. (p.156)
Various younger companies such as
Tangram, which makes educational system software, and Intrinsic
Technology, which makes mobile device
software, noted that it was
difficult to develop and grow because they lacked managers who could
implement the company’s vision. (p.157)
Piracy is also often mentioned as
something that continues to hurt the software industry, and is now
being officially
recognized as a problem. Firms that we interviewed
recognized that many software
pirates are simply firms or
individuals who cannot afford the software, and whom
the state may
be unwilling to penalize. (p.158)
At least three distinct strategies
appeared to be adopted in order to address
the need to survive and
grow under these conditions.
The first strategy is that of
specialization. Specialization is increasingly seen in
the better
product firms such as Kingdee, Kingstar, and Red Flag.
Specialization is
one way of deepening competencies and
differentiating oneself from other firms
that cannot do so.
(p.159)
No comments:
Post a Comment